IV. Discussion

We find Verizon's petition for modification of D.03-03-033 reasonable and we will grant it. The interim rates adopted in D.03-03-033 used the Verizon New Jersey UNE rates as a starting point for an analysis involving the FCC's Synthesis Model. Now that the New Jersey Board has found it reasonable to adjust these rates, both to modify the cost of capital and to correct a cost allocation error involving switching, it is logical that interim rates in California based on the original New Jersey rates should be adjusted as well, as long as the adjustment is not unduly burdensome to calculate or implement.

The protests of AT&T/MCI and the small CLCs are not persuasive. First,

AT&T/MCI claim the Commission did not rely on New Jersey UNE rates to the extent suggested by Verizon. While it is true the Commission performed its own analysis and did not simply apply New Jersey rates to California, the New Jersey UNE rates were the starting point for the Synthesis Model analysis used in D.03-03-033 to set interim rates. Now that the starting point has been corrected and modified, and given that it is not an onerous process to translate the updated New Jersey rates into our own interim rates, we find it reasonable to make the adjustments suggested by Verizon.

Second, the protesting parties argue that adjusting interim rates will take valuable time and resources away from the efforts to set permanent rates for Verizon. We do not agree with this assertion. Verizon has provided the calculations to adjust its interim rates based on the newly adopted New Jersey rates. The staff of our Telecommunications Division verified these calculations and the rate adjustments are not complex. There is no need for a protracted proceeding to debate how to make interim rate adjustments. The adjusted interim UNE rates are found in Appendices A, B and C to this order, which replace the appendices in D.03-03-033.

Third, AT&T/MCI claim the New Jersey rates are still interim. While it is true that the May 21, 2004 order by the New Jersey Board required a compliance filing, that has now occurred and the rates are final.³ The adjusted New Jersey rates are now in effect and this Commission can rely on them to the same extent it relied on the earlier New Jersey rates.

Fourth, the protesting parties claim there is no need to adjust interim rates since they are already subject to adjustment, or "true-up," once final rates are adopted. Along the same lines, the protesting parties claim a change in interim rates will create unnecessary complexity in the true-up process. We agree with Verizon that the mere existence of a true-up mechanism at a later date should not prevent adjustment of interim rates based on the best information available, and modifying interim rates will send appropriate market signals because the new rates are based on the most current Verizon New Jersey rates. Finally, we disagree that the true-up will be complicated by this adjustment. When permanent rates are set, the true-up will reflect (1) the difference between the original interim rates and permanent rates for the period the original interim rates were in effect, and (2) the difference between the revised interim rates and permanent rates for the period that revised interim rates are in effect. Verizon's explanation is straightforward and we agree this is how the true-up should be calculated once final rates are set.